It could be that The Age has misrepresented Professor Currie but, on the face of it, this looks like the most foolish set of proposals I have yet seen put forward to address Melbourne’s congestion – and that is really saying something in Victoria! Many of the proposals –particularly  rationing road use to non-car users in the face of expanding travel demands – will worsen congestion dramatically not improve it – by constraining the times cars can make journeys and thereby creating bottlenecks.  Rationing plans do not allow high-valued journeys to be undertaken – they try to reduce car use by making congestion worse. 

How could a Government shell out hard-earned tax-payer dollars for such advice? My only hope is that The Age have misrepresented Professor Curries’ views.

The only way to manage excessive demands for something whose price of usage has been set at zero is to allow a positive price for road use to develop.  Road use needs to be priced as has been argued by countless commentators for more than 50 years.  This reduces the excessive demands for road space and allows journeys to be undertaken which do have high value.  To be specific suppose your wife is pregnant, her waters have broken and you urgently need to get her to hospital.  Under the Currie proposals you will face a more difficult task of getting her to the hospital since, with reduced effective supply, congestion will be worse – with congestion pricing you simply pay the toll and avoid the excesses of congestion.  With pricing people making marginal journeys defer or shift to another transport mode – about half of all journeys in a city are discretionary so it is quite easy to cut out 10-15% of demand to eliminate excessive congestion by pricing.

Parking spots shouldn’t be cut but priced properly so that, again, high-valued journeys can be taken.  Professor Currie is out of touch with the recent literature on parking  - much of this associated with Professor Donald Shoup – which again emphases using economics not heavy-handed prohibitions to manage scarcity.

Transport planning in Victoria is a black hole but this type of nonsense should be buried and a rational rethink of transport issues developed which is based on the science of scarcity – economics . Forget about daft engineering solutions that are usually ineffective – this proposed solution is worse than that since it will make things worse.

Parking charges that exist at a destination influence the costs of travel which terminate at that destination but, to the extent they reduce such terminating traffic, provide incentives for increased flows of ‘through’ traffic (and traffic doing errands that does not require long-term parking) which will now face reduced congestion costs.  On the other hand if all traffic does terminate at a destination, where it must park, then parking charges substitute perfectly for congestion charges.   Parking charges that target congestion – even specific peak period charges – are attractive to government since they do not impose substantial administrative difficulties given that some sort of charging is normally already in place.

In principle ‘first best’ parking charges should not be directed at congestion costs associated with commuting at all if there is non-terminating traffic – the traffic itself should be subject to a congestion charge. Parking charges should instead target the elimination of costs associated with the act of parking itself such as wasteful searches for a parking spot (including search-induced external congestion costs) that stem from excess demands for limited parking spots. 

The effect of providing relatively cheap on-street parking is to create an excess demand for it resulting in high levels of congestion from attempts to secure a parking spot.  The preference for providing short-term parking options provides incentives for greater traffic densities averaged over a day but possibly a shift away from travel during peak periods.   The price differentials between on-street and privately-supplied parking provide incentives to search around for a cheap outcome, thereby increasing congestion.

 In major Australian cities however attempts have been made to adjust parking charges to influence traffic flows as a ‘second-best’ attempt to restrict congestion on roads. For example the Victorian Government, in 2006, introduced an $820 per parking spot levy on long-stay car parking spaces in Melbourne to ease traffic flow congestion and to reduce greenhouse gas emissions.  It was also intended to encourage more short-stay, off-street parking although, as mentioned, this might have counterproductive offsetting effects in increasing traffic flows.  The parking levy is administered by the Treasury (not the Department of Transport or VicRoads) and impacts on about 52,000 parking spaces in the city providing about $40 million fiscal revenues each year (Dowling, 2008). 

In Sydney, NSW too a Parking Space Levy (PSL) has operated since 1992 to discourage car use in major commercial districts.   The PSL is hypothecated to help fund infrastructure projects that make it easier to access public transport – these include ‘kiss and ride’ facilities that allow temporary parking for those dropping off or picking up travellers, park-and-ride facilities, bus shelters, taxi stands, transport mode interchanges, passenger information and security services.  The PSL is $950 in Category 1 areas (Sydney CBD, North Sydney, Milsons Point) and $470 per space annually in Category 2 areas (Bondi Junction, Chatswood, Parramatta, St Leonards). In 2008/09 PSL collections are estimated to be $47m and are, again, collected by a branch of the NSW Treasury on behalf of the NSW Ministry of Transport. 

At the same time as inner city parking costs are being increased in Melbourne extra free parking spots are being provided in outer Melbourne on each of the five major train corridors into Melbourne City. This encourages ‘park-and-ride’ approaches towards city commuting.  This can again be thought of as a ‘second-best’ attempt to deal with congestion without pricing it directly by providing free parking as well as rail journeys to encourage a modal shift away from private car use.  The key issue here is whether the value of the land appropriated to provide the parking spot exceeds the value of the congestion reductions provided by encouraging this shift.

The same policy is being pursued in Sydney under the umbrella of ‘transport interchange policy’.  If anything the cost of providing a parking place near a Sydney railway station would exceed that in Melbourne given higher land values in Sydney.

These ‘park-and-ride’ measures will reduce city congestion but the issue is whether this reduction is cost efficient. Land near railway stations often has a high opportunity cost. It could be used for homes, other buildings or for landscaping. Multi-level ‘structured’ parking stations involve, in addition, very substantial construction costs and will only ever be effective when land values are particularly high. The cost of providing a parking spot at a train station in Melbourne has been estimated by Green advocates at up to $17,000, which at first sight seems an expensive way of switching passengers from car to rail use to economise on congestion (Houston and Perkins, 2008).  This high cost estimate is consistent with estimates for other countries. Thus Shoup (2005), for example, estimates that the cost of providing a US parking spot typically exceeds the value of the cars occupying it. Litman (2009, p.5, 4.2) estimates  that, even apart from the opportunity value of land, that parking structure construction costs in the US average $15,000US per parking spot.

Clearly parking spots in city areas are anything but costless.  Despite this many ‘park-and-ride’ and other schemes typically leave parking unpriced.  A parking spot is not a public good, however, since its use is both excludable and rival. It should only be provided publicly at a subsidised price if the subsidy equals the external benefits flowing from reduced congestion. If purely private benefits are being delivered they should be recouped via metering at marginal cost. Otherwise land resources may be inappropriately converted into parking spaces because non-cost effective policies have been employed to address congestion.

It is straightforward to compute the scale of the daily external costs that must be eliminated to justify provision of a ‘free’ parking spot costing $17,000.  The minimum congestion cost that must be avoided at a discount rate of 4 per cent is $17,000*.04/1.04 or $653. Assuming that travellers use this spot 240 times annually, this means the current avoidable daily cost must be $2-72. With a discount rate of 6 per cent the minimum avoidable daily cost is $4-01. At 4 per cent discount rate journeys which average greater than 40 km will yield a higher external congestion cost, at an average price of 6.8 cents per km in Australian capital cities (compare BTRE, 2007), than the discounted cost of the parking spot.   The $17,000 capital cost figure seems high and might stop observers from thinking positively about the scope for ‘park-and-ride’ policies but the implied daily cost of free provision given relatively low discount rates is not particularly high.

Finally, free parking in areas where congestion is an issue provides a major source of excessive road demands which has an implied subsidy cost for making journeys. For the United States, Shoup (2005) estimates that a free parking spot is equivalent to a 14.5 cents US per km (22 cents US per mile) subsidy to the average American making his or her journey to work which reduces the cost of a commute by 71 per cent. In many cases this substantially exceeds the average marginal congestion cost of travel. Employer-paid parking reduces the cost of driving to work by more than double the average optimal congestion toll. Other authors (Litman, 2006) put the estimated subsidies of parking free at between 2-7 cents US per km (3-10 cents US per mile).  There is controversy about whether this is an external cost of parking per se because it really results from other pricing distortions including treating parking as a tax preferred fringe benefit. 

In large Australian cities free on street parking is almost non-existent with much of the growth in parking spots occurring in privately-operated parking stations. In addition, in Australia free parking provided to an employee is much less an issue since it is normally subject to a ‘fringe benefits’ tax of 46.5 per cent. This occurs if the parking spot provided to the employee is within a one km radius of a commercial parking station. In this case the tax rate is levied on the imputed parking benefit set at lowest daily charge levied by such a nearby parking station.  This eliminates distortions that arise on the basis of free employer-provided parking.

While some Australian parking is under-priced it should be pointed out that at airports parking is overpriced (ACCC, 2009).  Airport operators can extract monopoly rents because they can control landside access. This is particularly the case for short-term parking since there is often competition for longer-term parking from service providers removed from an airport.  In 2002 Southern Cross Airports Corporation Consortium, backed by Macquarie Airports, purchased Sydney Airport for $5.6b and, from 2003/04-2007/08, increased its short-term charges for 4 hour parking spots by 80 per cent.   These increases can reflect ‘monopoly’ rents rather than ‘locational’ rents that come about because motorists seek a preferred location to park (Forsyth, 2004).  Bids in airport privatisations will be high and attractive if operates foresee the possibility of charging monopoly prices for services. Of course if such monopoly rents are being earned then deadweight losses are being incurred by the travelling public who face reduced supply and extra parking costs. Upstream businesses such as airlines and tourism operators will also experience lost business.

In the United States, Shoup (2005) estimates for the United States, where drivers pay expressly for parking in only 1 per cent of their trips, that the cost of all parking spaces exceeds the value of all cars and may indeed exceed the value of all roads.  Moreover, an average of 30 per cent of traffic in 11 large US cities that Shoup examines is cruising for a parking spot. The average motorist takes 8 minutes to find a spot.  Motorists themselves attach high disutility to such searches – in Sydney, in one of the few such Australian studies, it has been determined that motorists will pay up to 3.5 times their wage rate to avoid this searching (Henscher & King, 2001).

Given the suggested scale of such costs it is indeed surprising that Australian public transport authorities have paid almost no attention to the issue of providing efficient levels of on-road and off-road parking in major Australian cities. Parking charges provide a useful adjunct to policy designed to address congestion costs. Transaction costs of substantially improving parking policies are low.  Parking policies are particularly effective when ‘second-best’ constraints rule out direct congestion pricing.

Poor parking policies create congestion through effects in creating search costs on motorists who seek a parking spot.  Where kerbside parking is permitted charges should be set so that parking markets readily clear.  There is no sensible rationale for low on-street parking charges. Cruising for parking is socially wasteful so charges need to be set high enough so that anyone, anywhere can readily find a parking spot. If this proposal is implanted then there will also be no search-related congestion costs. Traffic engineers normally recommend that about 15 per cent of parking places should be kept vacant to insure easy ingress and egress out of spots so setting charges to achieve this targeted vacancy rate will avoid socially wasteful ‘cruising’ (Shoup, 2005). 

Parking charges should ideally not be used to target commuting congestion but they can be ca useful adjunct to such policies and a useful second-best policy. They should be set to achieve equilibrium in parking markets so excess demands for parking are eliminated as well as wasteful search costs. 

References

R. Arnott, T. Rave & R. Schöb, ‘Some Downtown Parking Arithmetic’, in R. Arnott, T. Rave & R. Schöb, Alleviating Urban Traffic Congestion, The MIT Press, Cambridge, 2005, Chapter 2. 45-100.

Bureau of Infrastructure, Transport and Regional Economics (BITRE), Australian Transport Statistics June 2008, June, 2008c.

Bureau of Infrastructure, Transport and Regional Economics (BITRE), Moving Urban Australia: Can Congestion Charging Unclog Our Roads?, Working Paper 74, BITRE, Canberra, 2008a. 

Bureau of Transport and Regional Economics (BTRE), Estimating Urban Traffic and Congestion Cost Trends for Australian Cities, Working Paper 71, BTRE, Canberra, ACT. 2007.

A. Downs, Still Stuck in Traffic, Brookings Institution, 2004.

P. Forsyth, ‘Locational ajnd Monopoly Rents at Airports: creating them and Shifting Them’,  Journal of Air Transport Management, 10, 2004, 51-60

D. Henscher & J. King, ‘Parking Demand and Responsiveness to Supply, Pricing and Location in the Sydney Central Business District’, Transportation Research Part A, 35, 2001, 177-196.

C. Houston & M. Perkins, ‘Latest Problem on Train Networks – Car Parks’, The Age, May 27, 2008.

D. Shoup, The High Cost of Free Parking, Planners Press, Washington 2005.

The most plausible traffic congestion pricing solutions for Australia involve specific cordon pricing for some of its major cities along with pricing of major arterials and ring roads. Most plausibly these cities would be Sydney and Melbourne.  Other cities face high per km congestion costs but have limited aggregate congestion costs that would mean fixed costs of operating cordon pricing schemes would make them at best, only marginally viable.  There are serious issues of providing extra public transport infrastructure to encourage modal shifts from the use of private vehicles.

Australian per capita incomes should double over the next 20 years which will impact on transport demands and on the liveability of Australian cities.  Our increasingly affluent capital city populations will grow by 3 million with car traffic forecast to increase by 33 per cent, light freight by 41 per cent and heavy traffic by 39 per cent.  Growth in total traffic in already congested major cities will be considerable.  In the absence of pricing Sydney’s traffic will grow 47 per cent and Melbourne’s by 40 per cent (Gargett and Cosgrove, 2004).  Moreover, some key congestion impacts will occur in state capitals such as Brisbane and Perth.

These congestion impacts will be increasingly difficult to reverse using conventional supply measures as land supply constraints bite.  Increasingly pressure will fall on a more comprehensive reliance on public transport along with pricing congestion.  As cross price elasticities of demand for car travel with respect to public transport prices are low this puts added pressure on the need to price congestion.

Theory. The background static speed/flow theory of congestion pricing is exposited in Hau (1992). This theory ignores traffic bottleneck issues and the dynamics of pricing. Then, if motorists have the same value of time, charging motorists the dollar value of the marginal congestion costs they impose provides an efficiency gain since losses to travellers as a consequence of higher commuting costs are exceeded by the revenues yielded by the congestion charges.  An important feature of this outcome is that there are no uncompensated gains to motorists – road users are only better-off with appropriate redistributions of tax revenues.  This seems to create substantial ‘political economy’ issues in implementing congestion pricing since there are issues of trying to convince motorists that are compensated.   Uncompensated gains can arise if motorists attach different values to their travel since then those with a high value of travel time (generally those on high incomes) derive net benefits that exceed the costs to those making low-valued journeys.  There can also be gains to individual motorists if they prioritise the same trip differently though time.  Finally, if there is extremely high congestion so that, for example, large queues form – this is termed hypercongestion – then uncompensated gains can arise even if motorists have a uniform value of time.

The main shortcomings of this model are that it cannot adequately accommodate bottleneck constraints that cause hypercongestion. Nor does it account for the dynamics of driving decisions – motorists can not only choose if they travel but also when they travel.  They can avoid the worst congestion during peak periods by changing their departure time.  The ‘bottleneck’ congestion model addresses these issues (Vickrey, 1969; Arnott et al, 1993).  Here motorists have a preferred arrival time and incur increasing costs with departures from this time.  These costs are traded-off against time savings costs of leaving before or after peak travel periods.  With a single bottleneck a queue forms at peak travel times and then declines.  The optimal congestion toll then varies with time as an inverted U-shaped function which seeks to ‘flatten out’ the peak by inducing more drivers to leave earlier or later.  Unlike the speed/flow model this toll eliminates congestion entirely by eliminating queuing at the bottleneck.  Empirical estimation of this model has proven difficult but numerical simulations suggest that half the welfare gains yielded from congestion pricing now come from trip rescheduling rather than avoidance of peak travel altogether.  This reflects the fact that the costs of congestion arise because people are forced to shift away from their desired departure times as well as that they incur extra travel times.  This means that the welfare gains are much greater than in the speed/flow model and roughly of the order of the revenue collected.

Finally, it is worth emphasising that congestion can arise from non-recurring events such as accidents and bad weather. The types of models discussed above do not directly address such concerns but, with congestion charging, such events should have less severe impacts (BITRE, 2008a).

Empirics. There are various methods for estimating congestion costs – macro or aggregative approaches (an example is BTCE, 2007), network simulation-based (e.g. the Saturn model, Van Liet & Hall 1997) and most recently game-theoretic (Viauroux, 2006). Most empirical models use the speed/flow approach.

The most comprehensive and up-to-date study of congestion costs in Australia is BTCE (2007) and it relies on the speed/flow model.  This study provides estimates of the congestion costs in the eight Australian capital cities and base case (business as usual, ‘bae’) projections of these costs to 2020.  Conceptually the study estimates these correctly as deadweight loss (DWL) estimates.  The methodology is aggregative and relies on broad indicators of a city’s overall traffic rather than being based on network simulations in each city. It is intended to be appropriate for use in national level studies.  Comprehensive network modelling estimates are not yet available for Australia.

For 2005 the estimated DWL is $9.4b for the 8 Australian capital cities comprising private time costs ($3.5b), extra business time costs ($3.6b), extra vehicle operating costs ($1.2b) and extra pollution costs ($1.1 billion).  This aggregate figure is subject to considerable estimation uncertainty – sensitivity analysis suggests the true figure lies between $5-$15b. The worst congestion is concentrated in Sydney and Melbourne (costs are $3.5 and $3.0b respectively) though it is growing strongly in the smaller cities such as Brisbane. These estimates ignore costs of introducing new congestion control regimes, ignore other consequences of congestion other than those mentioned and assume a 1 per cent annual expansion in lane-kilometre road provision through to 2020. Under bau traffic will grow 37 per cent from 2005-2020 and congestion costs will grow strongly to $20.4b. 

The congestion costs identified are around 8 cents per km in Sydney, 7.5 cents in Melbourne, 6.5 cents in Brisbane, 5.4 cents in Perth and 5.2 cents in Adelaide.  The average for all 8 cities considered was 6.8 cents per km.  These figures are mid-range compared to national estimates for the US and the UK.  (Specifically the year 2000 weighted estimated average across all capital cities was 6 cents compared to an estimate of 6.6-7.2 cents US/km for the UK in that year and 1.5-3.3 cents US/km for the US (Parry and Small (2005, p 1282)).

All of these studies use aggregative speed/flow models which raises the question of whether they understate the gains from introducing congestion by pricing by not recognising gains associated with smoothing out bottleneck issues.

The cities that would be eligible candidates for reasonably comprehensive pricing, assuming estimates from the aggregative BITRE (2007) study are plausible, are Sydney and Melbourne.  Brisbane, Perth and Adelaide have quite high per km costs but much lower aggregate congestion costs and will be less obviously candidates for comprehensive pricing given the fixed costs of establishing a pricing scheme that are discussed below.  There is no case at all for attempting to capture congestion costs using congestion tolls outside these major cities.

Current Australian experience. Most road pricing in Australia – certainly CityLink and Eastlink in Melbourne – are geared toward achieving cost-recovery and do not target congestion explicitly.   Such tolls do not achieve the objectives of efficient congestion pricing since tolls do not increase at peak travel times when traffic is most intense.  Thus such tolls do not provide incentives to switch travel times away from peak periods to ‘smooth out the peak’.  There are inefficiencies here that reflect the levying of hefty charges on motorists when there is no congestion and hence when there are no congestion costs.  Private firms operate these tollways under contract with government so that an appropriate reform would be to renegotiate these contracts so that short-term marginal cost rather than uniform charges were levied (Clarke and Hawkins, 2006).  This move would eliminate DWLs stemming from current inefficient charges.   If private management of tolled roads is to be maintained then future contact designs for tolling should require efficient pricing perhaps along with perhaps a compensatory transfer to private operators from the government.

There is one significant attempt to introduce ‘time-of-day’ pricing in terms of tolling for use of the Sydney Harbour Bridge.  This tolling came into operation on 27^th January 2009. The explicit objective was to ease traffic congestion by encouraging motorists to travel outside peak periods if possible.  On weekdays during the peak period 6-30am-9-30am and 4pm-7-00pm the maximum toll of $4 is charged.  From 9-30am-4-30pm the toll is reduced to $3 while from 7pm-6-30am the toll is lower still at $2-50. On weekends lower tolls are levied.  It is to early to make assessments on the impact on peak traffic flows since although the initial effects look favourable – peak traffic flows crossing the bridge have eased – the longer-term effects cannot yet be determined.  The important implication is that traffic authorities have made a move towards specific ‘time-of-day’ pricing, a move which essentially endorses the logic of the congestion pricing model.

The Sydney Harbour Bridge experience should provide useful evidence on the effects of differential time-of-day pricing on traffic congestion.

Second-best issues. The ‘first best’ case for comprehensive road pricing is immediate provided that the costs of comprehensive pricing (analysed below) do not exceed the DWLs avoided.  There are two complications that limit the applicability of this conclusion however (i) that comprehensive pricing may in fact be impractical so that only pricing of a subset of roads (including perhaps a cordon around a city’s CBD) may be feasible and (ii) that general equilibrium impacts of pricing may trigger additional distortions in such areas as labour markets.  General equilibrium complications are raised in Section 1.7 but, given that practical road pricing issues are almost always ‘second-best’ issues,  it is essential to discuss some ‘partial pricing’ second-best issues now.

Second-best ‘partial pricing’ issues are discussed in Choe and Clarke (2000), Clarke (2008).  The main insight is that if congestion pricing is restricted to a city cordon or to major arterial or ring roads in a city that the gains from congestion pricing can only be realised with auxiliary policies to address ‘second-best’ constraints and that, even with such side policies, gains may be substantially reduced.   

If pricing is imposed around a cordon then congestion can develop on its boundary.  This must be addressed through parking restrictions and other policies imposed around the boundary.  Pricing only major roads can lead to ‘rat-running’ along alternative unpriced routes that can create urban disamenities.   Pricing and investment policies are altered by these constraints as well.  Generally tolls should be set lower so that less DWLs are captured than would be without the constraints and installed road capacity on the tolled roads should also be lower.  This inevitably means lower welfare gains from congestion pricing.

If major arterial roads and ring roads are to be priced into cities – there is a strong case for doing so in Melbourne at least given extensive congestion in the city periphery (Clarke and Hawkins, 2006) – then there is a need to restrict traffic follows onto minor unpriced roads by using traffic architecture and perhaps traffic constraints.  These issues again reduce the gains from congestion pricing.

An important issue in large Australian cities is the congestion arising on major arterial roads and cross town roads at a considerable distance from the city.  These are intractable issues since it is difficult to eliminate ‘second-best’ issues on roads that run through low-population density areas on a city’s periphery and difficult to provide public transport infrastructure that will encourage modal shifts that are sought by pricing private vehicle use.  The complication is that many journeys i9n these areas are not along roads directed radially towards the city CBD.  Many journeys are cross-town to workplaces, schools and shops located elsewhere in the city periphery.  Clarke and Hawkins (2006) argue for liberalising the provision of a wide range of bus and mini bus services in such areas as a palliative but there remain difficult issues of transport planning here.

Implementation Costs. The feasibility of peak-load pricing has improved recently with developments in electronic metering technology. Fees can be collected electronically by in-vehicle transponders or by direct billing with global positioning systems.

Nevertheless proposals to price congestion face cost obstacles and vary in accord with the extent and complexity of the pricing.  Assessing these costs is difficult since congestion charging schemes are in their infancy and evolving technologically.  Even providing ballpark estimates of the costs of introducing comprehensive or piecemeal congestion pricing in Australia is complicated by the distinctively lower population densities of Australian cities (BITRE, 2008a).  It is not clear how transferable cost estimates are. Congestion problems are less severe but fixed transaction costs of observing and pricing traffic flows are spread over a smaller population base.  There are also greater costs of providing public transport to encourage sought-after modal shifts.

The costs of comprehensive electronic pricing involving charging by location and time using on-board units are large and uncertain. For Britain the Eddington report (DOT, 2006) estimated set-up costs in the wide range £10-62b with annual running costs £2-5b.  This wide range reflects uncertainties over the scope of charges and technology costs. There are also costs of compliance and enforcement.

In terms of partial approaches to congestion pricing much recent attention has focused on the London area pricing scheme.  The experience of this scheme in terms of costs has important implications for those seeking to imitate it. Set-up and operational costs of the scheme were considerably higher than initially expected. Implementation costs over the first two years averaged were twice what were expected during the planning phase partly because of much higher than expected compliance costs.   The annual costs of the scheme are estimated to be £163m (£143 million if establishment costs are included) compared to total annual benefits of £230m (Leape, 2007).  Thus costs comprise more than two-thirds of benefits.

In addition there are the costs of providing enhanced public transport services to meet demand created if the costs of private vehicle use are increased.

An interesting aspect of the scheme of relevance to Australia is that the London area scheme might be seen as an intermediate policy in a longer-term move to full-scale electronic pricing of all roads in the UK.  The success of the London scheme suggests that such a move may, in fact, be uneconomic since congestion pricing of London accounts for 80 per cent of the benefits from a national scheme (DOT, 2004).  In fact on interurban roads Newbery (2005) estimates that national distance-based pricing would be uneconomic and that a better scheme would be to simply rely on existing fuel taxes which would adequately capture many of the congestion costs.

Reasons for the success of the London scheme include the existence of a well-functioning public transport system and the presence of very high congestion levels.  Moreover, the existence of a ring road around London provided a convenient boundary.   It cannot be assumed that Australian cities with milder traffic congestion, less clearly defined boundaries and an already overtaxed public transport system would have an analogous cost experience.

In Sydney, for example, in 2004  there were 15.8 million trips per day of which 70.5 per cent were  by private vehicle, 17.2 per cent were walked and where only 9.9 per cent were by public transport.  Public transport trips are split about equally between bus and rail.  Achieving substantial reductions in traffic congestion would involve huge costs and hefty road user charges.  Reducing traffic volumes by one third would mean diverting 846,000 people from car to other modes which would place huge expansion pressures on the bus and rail system   (Stopher and Fitzgerald, 2008).   

References

R. Arnott, A. De Palma & R. Lindsay, ‘A Structural Model of Peak-Load Congestion: A Traffic Bottleneck with Elastic Demand’, American Economic Review, March 1993, 161-179.

R. Arnott & K. Small, ‘The Economics of Traffic Congestion’, American Scientist 82, 1994, 446–455

Bureau of Infrastructure, Transport and Regional Economics (BITRE), Australian Transport Statistics June 2008, June, 2008c.

Bureau of Infrastructure, Transport and Regional Economics (BITRE), Moving Urban Australia: Can Congestion Charging Unclog Our Roads?, Working Paper 74, BITRE, Canberra, 2008a. 

Bureau of Transport and Regional Economics (BTRE), Estimating Urban Traffic and Congestion Cost Trends for Australian Cities, Working Paper 71, BTRE, Canberra, ACT. 2007.

C. Choe & H. Clarke, ‘Pricing and Investment Decisions for a Tollway with Possible Route Substitution onto Alternative Congested Roads’, Australian Economic Papers, 39, 1, 2000, 84-91.

H. Clarke, ‘Targeting Urban Congestion: Equity and Second-Best Issues’, The Australian Economic Review, 41, 2, 2008, 177-186.

H. Clarke & A. Hawkins, ‘Economic Framework for Melbourne Traffic Planning’, Agenda, 13, 2006, 63-90.

Department for Transport, Feasibility Study of Road Pricing in the UK, London DFT, 2004.

Department for Transport, Transport Demand to 2025 and the Economic Case for Road Pricing and Investment, London, DFT, 2006.

A. Downs, Still Stuck in Traffic, Brookings Institution, 2004.

D. Fullerton, A. Leicester & S. Smith, ‘Environmental Taxes’, NBER Working Paper 14197, National Bureau of Economic Research, July 2008.

T.D. Hau, Economic Fundamentals of Road Pricing: A Diagrammatic Analysis, World Bank Policy Research Working Paper Series WPS 1070, Washington, DC: The World Bank, 99 pages.  1992.

I. Parry, ‘Pricing Urban Congestion’, Resources for the Future, Discussion Paper, 08-35, November 2008.

J. Leape, ‘The London Congestion Charge’,  Journal of Economic Perspectives, 20, 4, 2006, 157-176.

T. Litman with E. Doherty, Transportation Cost and Benefit Analysis: Techniques, Estimates and Implications, Victoria Transport Policy Institute, Victoria, BC, Canada, Second Edition, 2009. (Online at http://www.vtpi.org/tca/).

Y. Kidokoro, ‘London-Type Congestion Tax with Revenue Recycling’, Economics Bulletin, 18, 1, 2005, 1-6.

P. Stopher & C. Fitzgerald, Managing Congestion – Are We Willing to Pay the Price?, Institute of Transport and Logistic Studies WP-08-03, University of Sydney, January 2008

D. Van Liet & M. Hall, Saturn 9.3 User Manual, The Institute of Transport Studies, University of Leeds, Leeds, 1997.

W. Vickery, ‘Congestion Theory and Transport Investment’, American Economic Review, Papers and Proceedings, 59, 1969, 251-261.

C. Viauroux, Structural Estimation of Congestion Costs, European Economic Review, 2006.